Overnight-Index-Swaps

Overnight Index Swap (OIS) is an Interest Rate Swap transaction that involving the overnight rate being exchanged for a fixed interest rate for certain period of time or vice versa.

How do you value an OIS swap?

The rate that overnight index swaps use must be divided by 360 and added to 1. For example, if this rate is 0.0053% the result is: 0.0053% / 360 + 1 = 1.00001472. In step 8, raise this rate the power of the number of days in the loan and multiply by the principal: 1.00001472^1 x $1,000,000 = $1,000,014.72.

How OIS is calculated?

Calculating the OIS Rate

There’s a specific formula for calculating an overnight index swap (OIS). It starts with setting an overnight rate. Next, you multiply the overnight rate for the first day of the swap by the loan duration. There are five pieces of information needed before you can calculate OIS.

How do you calculate swap value?

Interest rate swap value is determined by summing up the present values of its cash flows, starting with determining the correct discount factor (df), calculated for each period (t) of the cash flow.

What is swap valuation?

The value of a swap is the net present value (NPV) of all expected future cash flows, essentially the difference in leg values.

How is a swap marked to market?

The Mark-to-Market (MtM) is an important concept for an organisation that enters into a derivative transaction. For a simple uncollateralised interest rate swap, it represents the net present value of the cashflows using current forward market interest rates.